New distribution strategies promise to shake up market
By Staff -- Purchasing, 1/15/1998
With demand still strong, corporate buyers can expect competition among the biggest players in the desktop PC mart to intensify in 1998. This is good news for purchasing: Prices will continue to fall as big computer OEMs provide buyers with a growing selection of sourcing options for this year.After increasing by 15.1% in 1997, worldwide unit shipments of desktop personal computers are expected to continue to grow, albeit at a slower pace, next year. Norm Bogen, an analyst with In-Stat, Scottsdale, Ariz., forecasts worldwide desktop PC shipments this year to rise by 12.4% to 79.4 million units. For 1997, Bogen expects PC shipments to end the year at 70.6 million units.
Slowdown in sales worldwide is likely to result from declining demand in the financially beleaguered Japan and the Asia Pacific regions, says Bogen. Demand from buyers in Europe, however, started to pick up last year, after a sluggish 1996.
In the U.S., demand from corporate as well as retail customers will drive growth in 1998, says Bogen. On the retail side, consumers are expected to continue buying desktop PCs priced at less than $1000.
What's happening in this area, Bogen explains, is that consumers are entering retail outlets expecting to spend some $2500 to purchase a PC capable of running all the software they want. "But, they're finding out that sub-$1000 PCs are able to run all the applications they really need--including access to the Internet--unless they plan to use, say, video-conferencing applications."
One reason computer OEMs are able to price desktop PCs so low? Falling memory and electronic component tags, says Bogen. Another reason? Increasing competition among the four top suppliers. By lowering tags, Compaq, ibm, Dell, and Hewlett-Packard continue to gain market share at the expense of other OEMs that typically compete on price.
Waiting for Windows
On the corporate side, growth in demand will be influenced by buyers who have put off purchasing new models capable of running the latest version of the Windows NT operating system. It isn't likely, however, that Microsoft's delay to the second quarter of introducing Windows 98 will have as big an impact, says Bogen.
In efforts to compete more effectively with Dell, the number-two supplier gaining on rival Compaq by selling its PCs direct, the big computer OEMs announced that they, too, would be altering the ways in which they distribute their systems to corporate customers.
The first, much heralded channel assembly, promises to improve delivery leadtimes while reducing prices of desktop PCs. (Lower inventory levels at OEMs mean reduced costs.) Compaq, ibm, and Hewlett-Packard are among those OEMs shipping components to resellers who configure desktop units to customer specifications. Of the three, Bogen says that it appears ibm will come out strong in this arena. Dell, however, will remain formidable competition.
At the same time, some computer OEMs such as Packard Bell NEC are taking a similar tack with retail customers. These OEMs promise to build to spec and deliver within five days. It remains to be seen whether they will be successful at this formula, Bogen says, because retail buyers are accustomed to purchasing computer systems off the shelf.
Also on the consumer side, retailers are caught in the middle, so to speak, when OEMs introduce new technology. Seemingly stuck with inventory they need to move, retailers often have little option but to lower prices to move outdated units. Now, some big retailers such as Walmart and CompUSA are working with private-label providers that will assemble PCs for them. These units promise to carry price tags perhaps as low as $599. Still, Bogen says that retailer success tends to hinge on recognized brand names and marketing efforts.
Another trend in desktop PC distribution impacts both consumers and corporate customers: purchasing computer systems on the Internet. Two OEMs very successful in this area, Bogen says, are Dell (at $2 million in sales each day) and Gateway ($700 million in sales for 1997). Compaq and ibm have started to market desktop units to consumers on the Web, but hesitate to use this channel to sell to corporate buyers out of concern of alienating their reseller partners. Apple, on the other hand, has started to market to both consumer and corporate buyers. Bogen believes that it may, however, have a tough time at this effort without causing any channel conflict.
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